Analysis: Is Spain Europe's forgotten market?

The data for Spain’s regulated market in Q1 finally arrived at the end of May and you could argue they weren’t worth the wait. A total market size of €164m makes the entire Spanish market about two-thirds the size of Kindred in the period, while there was quarter-on-quarter sports betting decline. But this is to miss the bigger picture here.

The headline results were a market growing 29% year-on-year to €164m with 14.5% year-on-year growth in sports betting, 51% year-on-year growth in casino and 42% year-on-year growth in poker. Yes you read that correctly, 42% growth in poker with the launch of PokerStars’ shared liquidity network with the French market helping to add some €6m in revenues to the vertical in the quarter.

With Portugal having joined the shared liquidity party in late May and partypoker also launching a shared liquidity site, there is every expectation poker could be a strong performer at least through Q3 if not beyond. Although there is expected to be some drop off from the early enthusiasm after the novelty beings to wear off. But poker’s (don’t call it a) comeback is not the only story in Spain this quarter.

Sports betting slowdown

Sports betting is the biggest vertical, with 57% of the total revenues in the market in 2017 although this slipped to 50% in Q1 as other products growth outstripped it. The €82m of revenues the sports betting vertical generated in the quarter will have disproportionately gone to bet365 by our estimates and this is probably borne out by Spain’s consistently low sports betting margin compared to its European peers at 5.3% in Q1 2018 and 5.2% in Q1 2017 respectively.

Quarter-on-quarter decline is more a function of an exceptional Q4 2017 than a poor Q1 2018, with margin down from 6.6% in Q4, but the slowdown may be a cause for a small amount of concern. The market is generally more competitive than ever with both Spanish and international operators trying to grab more share from bet365 and expand the market generally. And with per-capita spend still some way below any other major European market there is no reason to think it’s close to maturity just yet.

But perhaps the slowdown in sports is as much a result of a shift in spend in the Spanish market. Casino was by some distance the fastest growing vertical with revenues up 51% or €19m to reach €56.5m for the quarter. Growth was fastest in slots, which were up 67% in the period, but was also strong in the live casino sub-vertical where revenues were up 50% year-on-year and reached €12m for the quarter. Taking into account Spain only offers live roulette that’s some performance and suggests there is still further for this market to climb.

More to come

And that is the story of casino in Spain generally. The casino sector appears to have a lot more growth to come. The products are still reasonably new to the market, with slots only having launched in June 2015 and live roulette in January of that year. And looking at the split by vertical casino is still just over a third of the total revenues, compared to closer to 50% in many of the other major European markets.

Spain then is still a market that feels very much in its early days although one that is maturing a little. Marketing spend was up 36% year-on-year across the sector with advertising up 45% and affiliate spend up just 15% with the inference that operators are beginning to compete more aggressively for new players. Active players and registered players up 24% and 28% respectively and crucially deposits up 59% in the period.

But this is not a mature market, and in terms of supply it’s not a market that is anything close to saturation point. In fact due to its strict licensing requirements, a very shaky looking macroeconomic picture and modest revenues to-date it looks distinctly lean with regards to licensed operators compared to some European markets. Spain in many ways remains the forgotten market.

From the major international operators we have GVC, The Stars Group, bet365, William Hill and 888 all present and fighting for share and from the big land-based operators we have the Cirsa/Ladbrokes joint venture in Sportium and Codere in sports while most of the casino and bingo operators are present in the market in varying shades of “good enough” style products for the most part. There is, you feel, a learning process still underway here.

Shifting into second gear

Casino operator Orenes Group has a casino tab marked “nuevo” on its sports betting site, while Sportium updated its app in May for the first time in two years and Codere only really launched in earnest in 2017. These are two major land-based brands who have a lot of levers to pull and if the Italian market is any guide there can be a lot of crossover success between retail and online in a newly regulated market.

The sense is still that Spain is only just getting started and the likes of Sportium and Codere have a lot of headroom for growth left in the market as do some of the other land-based groups. And beyond that aside from 888, bet365 and The Stars Group there has been relatively little flexing of financial muscle from the major egaming operators in this market to-date. Even though some of those active, such as Jackpotjoy and 888, frequently cite it as a key growth territory.

The question for the rest of the industry though is as always, would the money be better spent elsewhere? And perhaps Spain yet still yet to reach a scale to make anyone care. The bigger question might be by the time it does so who will be in a position to cash in?